August 30, 2014
Guide to financial protections for associations

 This article first appeared as "Protecting your members' interests in chaotic economic environments" in the 9/12/08 issue of Association TRENDS.

By ANDREW S. LANG, CPA

Most assn executives are now in the position of having to manage in a situation without any economic certainty. The fortunate few who have growing industry niches, or whose members or sponsors absolutely must continue to provide revenues at previous levels, are few and far between. For the vast majority it is simply impossible to know what income the future will bring.

Meanwhile many officers and board members are growing justifiably more anxious about the health and welfare of “their” organization. Unfortunately, some have succumbed to the temptation to act in ways that are contrary to the operating policies and long-term strategies of the organization, and to take on more managerial roles.

With extreme economic uncertainty what should assn executives do to protect the interests of assn members? Solutions are available and as usual most are simply good sense.

If your assn is suffering economically already, or likely to suffer a substantial reduction in revenue, then your executive team’s time must be taken from what “was” the agenda to what “is” the agenda. First and foremost you need to determine what you offer, or are getting ready to offer, that is essential to your members’ interests and what is not. Noncore items, and other expenses, need to be identified for board approval in the order in which they will be canceled should revenues fall to a predetermined level. Should matters worsen, unless you have substantial reserves, you will need to be able to cut costs quickly - political approval will not be expeditious.

Along with the approved cut list, CEOs’ need to be given the authority to act quickly in other areas should the need arise. An increase in authority to deal with a rapidly shifting economic situation simply makes good sense. In some cases this will mean contacting a single officer instead of the whole executive committee, in others the executive must use “best judgment” on matters that would have previously required governance approval.

There will be a temptation for the leadership to “do something” about falling investment values. If you have an investment policy and the board wants to move funds in a way not covered by the policy, retain expert advice before acting. Neither you nor the CFO should be asked to act or advise; if asked, politely decline - when the chaos is over, mistakes will have been made, leaders may be gone but staff will likely still be around to take the blame. Also, if you do not have an investment policy, get one promptly.

One investment measure all assns should consider is making sure their most liquid investments are covered by FDIC insurance. Large sums were once difficult to cover; with products like CDARS, an organization now can cover up to $50M without difficulty.

The last piece of advice is essential in challenging times - communicate. Let the board know where things stand. If investments are tanking don’t wait for a meeting to tell them…let them know now. A graph is helpful since numbers confuse most people. If there is bad news, you should telegraph the punch. In this way it is everyone’s problem. If you wait to tell them, some may decide you have withheld the truth.

Lang is president of LANGCPA, Potomac MD, and a frequent contributor to Association TRENDS.

 

 

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